Microsoft’s hardware strategy under scrutiny after record loss

23 Jul 2015 | Author: | No comments yet »

Microsoft Posts Net Loss Of More Than $3 Billion.

“Unless Microsoft can get to hardware break-even within two years or demonstrate sufficient offsetting value elsewhere in the portfolio, we think the company should exit the hardware business,” RBC Capital Markets analysts said in a client note.The Microsoft logo is displayed over the Microsoft booth at the 2010 International Consumer Electronics Show at the Las Vegas Hilton January 7, 2010 in Las Vegas, Nevada. (credit: Justin Sullivan/Getty Images) LOS ANGELES (AP) — Microsoft booked an $8.4 billion charge in the fourth quarter, swallowing a bitter pill by writing off the Nokia phone business it bought just over a year ago.

In fact, when I received an official, Microsoft-approved, Lenovo Yoga 12 laptop with Windows 10 on it last night, I thought there would be some sort of official stamp of completion. It narrowly beat analysts’ depressed expectations for a quarter that also saw a steep decline in personal computer sales even as it prepares to launch its latest operating system, Windows 10. Analysts agree that investing in cloud and Windows 10 makes strategic sense, but some say the rationale behind pouring more money into hardware is less clear. “Hardware remains a more commoditised piece across tech,” said FBR Capital Markets analyst Daniel Ives, who thinks all of Microsoft’s resources should be going into software. Adjusted to exclude the charges, the company posted a quarterly profit of 62 cents per share, beating the average estimate of 15 analysts surveyed by Zacks Investment Research of 31 cents per share. Microsoft doesn’t break out operating margins for its hardware business, but Jefferies & Co analyst John DiFucci told Reuters he believed the Xbox business was at best break-even and that Surface was unprofitable on an operating basis.

Nadella told analysts on a conference call he’d like Windows phones to be more targeted at high-end businesses and their employees, much like its Surface tablet, which saw upbeat sales. On July 29, those that haven’t caught up will receive Windows 10 Build 10240—or whatever Microsoft is calling it then—and possibly even an entirely new build (or patch). The company hopes that better integrating its store into the revamped Start button and powering more Internet searches through Bing will compensate for the temporary dip in Windows revenue. Microsoft plans for Windows 10 to be its last version of Windows before transitioning the business to a fee-for-service model down the road, although how that will work is unclear. The company gave an outlook for revenue of $20.7 billion to $21.3 billion for the first fiscal quarter through September that was below the $22.6 billion expected by analysts polled by FactSet.

More importantly, Microsoft has updated many of the Windows 10 apps separately, much like Google does for its Android operating system, or what Microsoft itself does for Windows Phone. The decline was exacerbated by a temporary bump last year when Microsoft ended support for Windows XP, which resulted in a one-time boost to Windows 7 sales. Why this matters: As blogger Paul Thurrott noted earlier today, it’s a matter of semantics: we’re used to buying completed products off a shelf, rather than services which are always being worked on.

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